IP Law Daily, TRADE SECRETS—Fed. Cl.: Judgment on pleadings granted against Fifth Amendment takings claim based on FDA disclosures, (Jan 24, 2025)

By Kevin M. Finson

Claims for a Fifth Amendment taking were dismissed because the trade secrets allegedly disclosed by the FDA to competitors were either produced by the FDA itself or already in the public domain prior to the disclosure.

Vanda Pharmaceuticals, Inc. failed to state a claim against the United States for a Fifth Amendment taking based on the Food and Drug Administration’s alleged disclosure of its trade secrets in new drug applications with pharmaceutical manufacturer competitors seeking FDA approval for generic versions of Vanda’s schizophrenia and sleep disorder medications, the U.S. Court of Claims has held. Vanda lacked cognizable property rights in the claimed secrets because they were not the result of Vanda’s innovation or effort (Vanda Pharmaceuticals, Inc. v. U.S., No. 1:23-cv-00629-AOB (Fed. Cl. Jan. 22, 2025)).

Vanda Pharmaceuticals, Inc. (Vanda) was a pharmaceutical company that had received Food and Drug Administration (FDA) approval for two new drug applications for Fanapt® (iloperidone), a schizophrenia medication, and Hetlioz® (tasimelteon), a sleep disorder medication. Vanda alleged that the FDA had engaged in a Fifth Amendment taking of its intellectual property rights by sharing dissolution specifications, impurity testing procedures, and particle size control techniques with competitors who were seeking FDA approval to market generic forms of Fanapt® and Hetlioz®. The United States moved for judgment on the pleadings.

On January 18, 2024, the court granted-in-part and denied-in-part the government’s motion to dismiss Vanda’s complaint for lack of subject matter jurisdiction and failure to state a claim. Specifically, the court dismissed Vanda’s breach of contract claim “as either an implied-in-law contract outside the Court’s jurisdiction or an improvidently pleaded claim that is facially implausible as a matter of law.” The court also declared Vanda’s claims time-barred as they related to disclosures purportedly made to one generic competitor.

However, the court denied the government’s motion to dismiss Vanda’s Fifth Amendment claim as an unauthorized taking. Instead, the court posed and deferred ruling on these novel questions: whether Vanda can assert a cognizable property interest in an alternative dissolution specification the FDA proposed to Vanda during the drug approval process; whether and to what extent the FDA is precluded from inquiring about a generic drug manufacturer’s impurity detection and micronization capabilities during the ANDA process simply because Vanda addressed them in its NDA; and the potential adverse impacts of crediting Vanda’s proprietary claims on the FDA’s administration of the NDA and ANDA processes.

Dissolution specifications. The court held that Vanda failed to identify a cognizable Fifth Amendment property interest that was the subject of a taking. Vanda’s claim was based on the government’s alleged disclosures of dissolution specifications and impurities testing and micronization information. Whether an adopted dissolution specification constitutes a property interest cognizable under the Fifth Amendment is an issue of first impression, the court noted.

FDA regulations define trade secret as “the end product of either innovation or substantial effort,” adding that “[t]here must be a direct relationship between the trade secret and the productive process.” 21 C.F.R. § 20.61(a). The court found that the dissolution specifications at issue did not satisfy either criterion. Although the FDA used information included in Vanda’s NDA to generate the alternative rates, “the revised dissolution specifications cannot be said to be the ‘end product’ of Vanda’s innovation or effort, let alone directly related to Vanda’s productive process,” the court said. The government could not be liable for taking something it had actually produced itself. The court further noted that Vanda’s assertions of proprietary secrecy in the dissolution specifications in issue further ran afoul of the FDA’s regulatory authority and obligations of ensuring bioequivalence in brand-name and generic drugs and in uniformly treating market competitors.

Impurities and micronization. Vanda’s claims based on the disclosure of its impurities testing and particle sizing (micronization) techniques both failed because the information Vanda claimed the FDA had disclosed to its competitors had been rendered publicly available by Vanda itself prior to the alleged disclosures when Vanda included it in patent applications.

The court dismissed Vanda’s claims and denied leave to amend, finding amendment would be futile.

The Case is No. 1:23-cv-00629-AOB.

Judge: Bonilla, A.

Attorneys: Paul Whitfield Hughes (McDermott Will & Emery LLP) for Vanda Pharmaceuticals, Inc. Borislav Kushnir, U.S. Department of Justice, for the U.S.

Cases: Patent TradeSecrets